Top 5 ETFs to Consider for Your Investment Portfolio (2023)

If you want diversification and high growth potential, tech ETFs are your best bet. While the tech industry changes quickly, a tech ETF is worth considering to help you build your tech portfolio. A tech ETF will provide much-needed diversification and reduce the investment risk when you buy an individual stock.

Tech ETFs are divided into three major industry groups which include:

• Technology hardware and equipment: This includes communication equipment, storage and peripherals, technology hardware, and electronic equipment, among other components.
• Software and services: This includes software companies and companies in the information technology sector.
• Semiconductors and semiconductor equipment: Including the ‘chip’ companies that assemble semiconductors and other supporting equipment.

If you are looking for broad exposure to tech, you can choose the best-performing ETFs that invest across different sectors for the best returns. Here is a review best tech ETF.

What Is a Tech ETF?

A tech ETF or technology ETF is an exchange-traded fund that invests in companies in the tech sector. These companies include all companies that create and distribute tech hardware such as smartphones, computers, semiconductors and software components such as cyber security, artificial intelligence and cloud computing.

Why Invest in Tech ETFs?

Tech ETFs are the most attractive investment options for an investor with high growth potential. They increase your odds by allowing you to earn higher returns than you would have earned if you invested in a single tech stock. However, it is essential to note that tech ETFs carry less risk because they are diversified across the technology sector.

While it may be impossible to know if investing in tech will guarantee significant profits, diversifying your investment through tech ETFs can help reduce investment risk.

What Are the Top 5 ETFs To Buy?

While all the tech ETFs on the table represent the industry’s best-performing ETF, the Invesco QQQ Trust has one of the lowest expense ratios of 0.2%. It also boasts a market cap of $181.963 billion. It allows an investor to invest in the top 100 firms in the tech industry in the United States.

The Technology Select Sector SPDR Fund (XLK) is one of the most sought-after tech ETFs in the Us and the world. It is tied to individual tech stocks on the S&P500, known to offer the highest returns. The fund tracks the performance of publicly-traded securities in the technology sectors by employing the replication approach.

1. iShares U.S. Technology ETF

• 5-year returns (annualized): 11.9% (as of Nov, 9,2022)
• Expense ratio: 0.40%
• Dividend yield: 0.01%

The iShares U.S. Technology ETF tracks the investment results of the Russell 1000 Technology RIC 22.5/45 Capped Index. The fund invests 80% of its assets in the securities on the underlying index, which tracks the tech sector’s performance in the U.S. equity market. It is important to note that the iShares U.S. Technology ETF is not diversified.

Here are its top holdings:

2. Technology Select Sector SPDR Fund

• 5-year returns (annualized): 30.82% (as of March 31, 2023)
• Expense ratio: 0.10%
• Dividend yield: 0.87%

The Technology Select Sector SPDR Fund is similar to the Vanguard Funds in asset size and expense ratio. On top of that, it tracks a similar index. It also tracks the S&P 500, which seeks to track the performance of publicly traded stocks in the tech sector employing the replication approach. The fund invests 95% of its portfolio in the index.

Here are the fund’s top 10 holdings:

3. Vanguard Information Technology ETF

• 5-year returns (annualized): 13.20% (as of March 31, 2023)
• Expense ratio: 0.10%
• Dividend yield: 0.78%

The large-cap tech stocks heavily weigh Vanguard Information Technology ETF. At least half of its portfolio is in its top 10 internet companies with a diversified outlook. It tracks the performance of the MSCI US Investable Market Index/Information Technology 25/50.

The index comprises large, mid-size and small companies in the U.S. within the tech sector. The fund attempts to replicate the target index by investing all its assets in the stocks that make up it. It is important to note that the EFTs are non-diversified.

Here are the ETF’s top 10 holdings:

4. iShares Semiconductor ETF (SOXX)

• 5-year returns (annualized): 16.79% (as of 12/31/2022)
• Expense ratio: 0.35%
• Dividend yield: 1.08%

The iShares Semiconductor ETF (SOXX) tracks an index of U.S.-listed stocks in the semiconductor industry. It tracks the performance of the ICE Semiconductor Index, which comprises U.S. stocks in the semiconductor sector.

The fund invests 80% of its assets in index securities. It may invest the remaining 20% in certain options, features and swap contracts, cash equivalents and cash. It is important to note that the fund is non-diversified.

Here are the fund’s top 10 holdings:

5. Invesco QQQ Trust

• 5-year returns (annualized): 12.14% (as of March 2023)
• Expense ratio: 0.2%
• Dividend yield: 0.68%

The Invesco QQQ Trust tracks the performance of the Nasdaq-100, comprised of the top 100 companies on the Nasdaq Exchange. The fund currently has the lowest expense ratio of 0.2% and a market cap of $181.963 of assets. It is among the favorite ETFs for most investors since it provides excellent exposure to the tech industry.

Here are the top 10 holdings of the Invesco QQQ ETF (QQQ):

How to Invest in Tech ETFs

ETFs make it easier to invest in the tech industry. However, some dynamics come into play. You will have to know the sub-sector you will be investing in. While most sectors are perennial, many are cyclical and have more booms and busts based on the said dynamics.

Here are the steps to follow when investing in tech ETFs:

1. Establish Your Investment Goals

Before investing in any financial instrument, you should establish your investment goals, risk tolerance, desired returns and investment time horizons.

2. Extensive Research on Tech ETFs

Ensure you research and choose the tech ETF that aligns with your goals. Make sure that the ETFs track the performance of the companies in the tech industry.

3. Consider ETFs Expense Ratio

The expense ratio is the fee the ETF provider charges for managing the funds. Look for the lowest expense ratio to maximize your returns.

4. Open a Brokerage Account

You will need a brokerage account to start investing in tech ETFs. You can choose a traditional broker or an online broker.

5. Fund Your Account

After you open your brokerage account, you must fund your account to start investing. Ensure you follow the instructions provided by the brokerage firm of your choice.

6. Place Your Tech ETFs Order

Once you fund your account, you can order your chosen tech ETFs. You can buy and sell tech ETFs the same way you do individual stocks.

7. Monitor Your Investment

Once you start trading in tech ETFs, you will need to keep an eye on and monitor your investment performance; you can rebalance your portfolio periodically to maintain your desired allocation.

Read Also: How to Buy ETF in Singapore and Index Fund Singapore

Related Questions

1. How Do I Choose the Best Tech ETFs to Invest In?

It would help to consider a few factors before choosing the tech ETF to invest in. Some of these factors include:

• The investment track record: The ETFs track record clearly indicates how the find might perform in the future. However, it is essential to note that there is no guarantee.
• The sub-sector: Every sub-sector in the tech industry responds differently to the development of the industry. For instance, software companies will perform differently than semiconductor companies which are often cyclical. It is essential to know the kinds of tech companies in your preferred ETF.
• The Expense ratio: Paying close attention to the expense ratio is essential. This will tell you how much it will cost to own the fund annually since it will affect your total returns.

2. Where Can I Buy Tech ETFs?

You can buy tech ETFs from an advisory or brokerage services with access to the markets with tech ETFs listed there.

3. Why Invest in The Tech ETFs?

The tech sector has been the best-performing sector in the last ten years. This is why tech ETFs have become popular among many investors. Tech ETFs invest in stocks related to the technology sector, such as hardware, software, semiconductors, biotechnology, networking equipment, I.T. services and telecommunications equipment.

4. What Are the Concerns of Investing in Tech ETFs?

Exchange-traded funds are subject to risks and the market fluctuations of the underlying investments. They are also subject to management fees and other expenses affecting your returns. Additionally, unlike mutual funds, they can be bought or sold at market price

Closing

Investors looking for great exposure in the tech industry have a lot of avenues to explore. You can invest in funds in the different sub-sectors or those that invest across the whole tech sector. It is, however, essential to learn the potential risks and returns of investing in any sub-sector to help you make an informed investment decision.

Key Takeaways

• The Vanguard Information Technology ETF (VGT) is the most diversified tech ETF with holdings across the tech industry and major tech giants.
• Every sub-sector in the tech industry responds differently to the development of the industry.
• Technology ETFs allow you to diversify your investment rather than investing in a single stock which may be risky for your investment.

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